Eureka! The antidote to risk aversion.

By Michael Hardy

Nov 17, 2011

Peter Sims has always pursued leadership and mentorship as a career choice. After earning an MBA from Stanford Graduate School of Business, he and some classmates started a popular course on leadership there. He also boasts a long history of collaboration with the faculty at the university’s Hasso Plattner Institute of Design.

His résumé is an illustration of Sims’ long-standing draw toward the study of how people lead and how people learn leadership. It’s an interest that has led to a steadily deepening set of insights into the process, which served him well in working with entrepreneurs when he was one of the people responsible for establishing and building the European office of Summit Partners, a global investment company.

However, his greatest skill might be in seeing connections that others miss. His association with the design institute at Stanford gave him the insights that led to his latest book, “Little Bets.” In design, he said, practitioners learn something that isn't taught in business school — rapid prototyping. A low-cost, low-risk test of an idea that can fail without greatly affecting anything paves the way to success much more surely than a grand plan.

Sims is also co-author of “True North: Discover Your Authentic Leadership,” a book whose insights are based on interviews with 125 leaders, mostly drawn from the world of big business.

Sims recently spoke with Federal Computer Week News Editor Michael Hardy about the ideas behind "Little Bets" and how they can help people succeed in an increasingly unpredictable world.

The book started as a three-page paper titled "Emergency Innovation," which is a terrible title. I didn’t even know if I could write a book. I talked to people, and I had a first meeting with a literary agent, who had nothing good to say. I learned from all those experiences.

There’s a tendency to think that we need to have an idea completely figured out in advance before we do anything. That’s a paradigm that has crushed organization leaders for decades. In reality, the research shows that — in all but very rare cases — it is just a fallacy.

There are two reasons that the false paradigm has become widespread. Industrial education values being able to optimize and create predictability when making decisions. Henry Ford wanted to make the set of processes it would take to put a car together as efficient as possible. That works well when you have a series of known processes. When the circumstances change and you have uncertainty, you’re still using the same skills, but they no longer work well.

The larger macro picture is that we’ve gone from a world of relative predictability in a lot of areas to a world that’s inherently unpredictable. This book is really about discovery. When we’re doing something new, something unknown, we need a new approach.

For example, in my discussions with people at the State Department — these are not senior-level people, these are field officers — one of their primary points is that if you look at the bookshelves in most State Department offices, you’ll see manuals on how to do damn near everything. These are called doctor-approved solutions. That’s how you standardize activity across an organization where you have to have a lot of standards. You don’t want to be violating a norm when the stakes are high. The problem with that is people feel like they have to look at a manual before they do anything.

When the Army did an analysis of people going to Iraq and what went wrong, the title of that document was “Waiting to be Told What to Do.” That approach fundamentally disempowers people to think for themselves. The State Department experience was very instructive, much like the Army's was, because it illustrates that we have lived in an era that has put such an emphasis on preventing errors that we’ve forgotten how to learn what the problems are. People in government are worried about one thing first and foremost: how to cover their own tails. When you operate out of a posture of defensiveness like that, it’s hard to do anything creative.

How to be innovative

People said to me one thing over and over again: Making little bets is the antidote to risk aversion. That’s the beauty of the concept. No one likes to lose anything. People are twice as likely to want to avoid a loss as they are to want to get a gain. A little bet is a low-risk, affordable way of learning something. So long as the bets are little, affordable, essentially risk free, that gives people the ability to take what the researchers would call an affordable loss.

Chris Rock is willing to bomb in front of 40 or 50 people. He’s willing to because he knows the reward is that he’s going to be brilliant in front of millions of people. This is precisely how entrepreneurs work. Howard Schultz of Starbucks went to Milan, saw how coffee was done there and wanted to bring it back to the United States. The first place he opened, the menus were all written in Italian, the waiters all wore bow ties, and there were no chairs. As Howard says, “We had to make a lot of mistakes to learn what to do.”

It’s very rare that a big bet has worked. [The Education Department's] No Child Left Behind is a great example of a big bet. It didn’t work.

If you look at where some of the best ideas in government are these days, they come from people who were social engineers. If you’re just doing your job in the State Department and your job is to do something innovative but you’re going to get penalized if you screw something up and your reward is pretty minimal if you do something good, the incentive is to play it safe. By starting small and building piece by piece, that is how you can get the resources and allies to do more.

If you were to look inside the military’s counter-insurgency manual, there’s a chapter where they say if you’re in a situation where you don’t have enough information to know what to do, use principles from design. That’s a good way to frame it. Use your right brain, your creative side, when you’re in a situation of uncertainty. But it’s not just design. It’s how all these people think and work.

All I’m doing is synthesizing an approach to discovery. Anytime you want to discover something new, these are the principles that have to be involved. Unless you’re a genius, unless you’re Mozart. Otherwise, this is the way it works.